Last year I described the budget by starting my column “finally it’s over”. This year I would like to start with: finally it has arrived. For the last several years, it had become rather a trend to see markets falling sharply following the Budget. So this year came as a pleasant contrast.
While the credit goes to the finance minister for presenting a reform-oriented and balanced Budget, some part of the post-Budget rally can also be attributed to the fear psychosis of investors. Investors to a large extent were unduly concerned about budgetary proposals and their likely impact on the stock markets. Since the Indian economy is in a high growth trajectory, the economic environment has to be supportive in order to achieve the desired results. However, uncertainties attached to the limited options available with the government led to nervousness among investors.
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This growth-oriented Budget has put to rest several doubts as it’s forward-looking and addresses a lot of issues that were haunting investors for some time now such as the status of the economic stimulus, the duty structure, government borrowings and the fiscal deficit.
Special mention needs to be made of direct and indirect tax proposals, which on the one hand, have left a good amount of money in the hands of tax payers, while on the other hand, a confidence-boosting slow rollback of stimulus measures has also begun. The borrowing target of the government and lower fiscal deficit targets were also positive surprises for the markets.
Though the hike in minimum alternative tax was unexpected, the cut in the cess on corporate tax was a welcome move. The rationalization of excise and custom duties was along expected lines.
The immediate difference is that from now on the Indian markets will not be one of the front- runners among the losers as domestic strength will counter the volatile and uncertain global economic scenario. This in itself is a big boost to the market as it will prepare the ground for the return of investors. Subsequently, the current pace of economic growth will help boost sentiment on bourses further. Indian investors actually needed a turning point for the market, which this Budget has justifiably delivered. Economic fundamentals will be back in the reckoning—that’s one of the immediate impacts of the Budget for the market.
On a broader horizon, valuations post tax adjustments will become slightly more attractive, which will also go down well with the markets as the budgetary proposals have a positive impact on firms.
Though it is fair to assume that the impact of the Budget will dominate the market for a very short period of time and the focus will shift back to global economic issues, with projections and assumptions in front of us, there would be more clarity about the economy.
There will be an surge in inflation due to the rise in petroleum prices, which as per the economics secretary, will be less than 0.5%. However, the spiralling effect of this would surely hit sentiment in coming weeks, and sooner or later the fear of fiscal tightening would pop up again to haunt investors.
Following the post-Budget rally, technical analysis suggests that the worst is over for now, and the market has a very limited downside going forward. As far as the trend on bourses is concerned, it is now pointing upward with a Nifty target of 5,148 in sight. What happened in the last 2 hours of trading on Friday does not mean peaking out of the trend as leading indicators are in crossover mode and clearly showing a break-out on the positive side.
The fact that the rally came on huge volumes, also reinforces the view that there is scope for more gains on bourses and next week should be good. On a broader horizon, short-term technical indicators suggest that the Nifty and the Sensex could move up 4-5% in coming weeks, before they see any significant downside.
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